Big-ticket deals are back in action

After dealing with high consumer price index figures through Q1 2024, the Fed is confident the US is back on its disinflationary path. The Personal Consumption Expenditures Price Index, the Fed’s favored inflation gauge, remained flat in May. The annual rate of price increases has now dropped to 2.6%. At the time of writing, the CME FedWatch Tool shows there is a 90% probability of a 25-basis-point rate cut in September.

The market may be off the highs of 2021-2022, but M&A activity in the Americas in H1 showed signs of recovery. Total deal value reached US$976bn, 32.7% higher than H1 2023’s US$735bn. The US syndicated loan market has enjoyed renewed activity so far this year, while traditional banks are pursuing deals to reclaim ground lost to direct lenders.

Volume vacillates

M&A volumes remain soft even as large transactions are being made. There were 6,427 transactions in the Americas in H1, a notable decrease of 17.4% compared to H1 2023, which saw 7,783 deals. If September marks a turning point for rates, as expected, deal volume should pick up toward the end of the year.

This volume weakness is observable across all three of the most performant sectors. TMT experienced an 18.7% decrease, dropping to 1,688 in H1. Business services saw an even steeper decline of 26.3%, with transactions falling to 888, while the PMB industry showed a similar contraction of 24% to 802 deal announcements.

This came as value impressed to the upside for all but one of the top three sectors. TMT led with US$251.4bn worth of assets changing hands, representing an 85.2% year-on-year increase. EMU recorded a similarly dramatic rise, with total deal value moving up by 67.9% as producers continue to optimize their resources and strategically position themselves for the energy transition.

Second quarter slump

On their face, H1’s figures look positive. But, concerningly, M&A trended substantially lower in Q2. Seven of the Americas’ 10 largest deals of H1 were announced in Q1, including the three biggest transactions. These were the US$38.1bn spin-off of General Electric’s renewables businesses into an independent company, GE Vernova; Capital One Financial’s US$35.3bn all-stock merger with Discover; and Synopsys’ US$33.6bn acquisition of engineering software provider Ansys.

The biggest deal of Q2 saw ConocoPhillips purchase Marathon Oil in an all-stock transaction valued at US$22.8bn including net debt. The acquisition will enhance ConocoPhillips’ US onshore portfolio by adding over 2bn barrels of resources.

As was seen earlier this year, corporates continue to capitalize on their elevated share prices by funding deals with equity. This strategy has served large buyers well, putting this class of investors at a significant advantage over financial sponsors, who are still waiting for the Fed to budge.

Published in association with Datasite, Deal Drivers Americas provides an in-depth review of M&A activity in the first half of 2024, as well as an outlook for the year ahead.

The report is also available on datasite.com.